The Great Lake State isn’t so great, according to the most recent rankings of economic freedom by the Canada-based Fraser Institute. In its annual study, “Economic Freedom of North America,” Michigan ranks 31st among U.S. states, which means we’re still aspiring just to be average. The institute also ranks 10 Canadian provinces and 32 Mexican states, using data through 2018.

The encouraging news is that our overall rank has improved two spots from where we have been stuck since 2015. The challenging news is that policymakers still have heavy lifting to do if they’d like to facilitate greater economic freedom and thus economic opportunity and prosperity for Michigan citizens. The Fraser Institute’s study demonstrates that people who live in states and provinces with higher economic freedom scores typically enjoy higher incomes.

Among Midwestern states, Michigan’s position is smack in the middle. Minnesota is at the bottom of the small group at 40th, followed by Ohio at 35th and Illinois at 34th. Wisconsin and Indiana both outperform Michigan in 19th and 8th place, respectively. New Hampshire ranks as the freest state in the union, while New York is dead last.

The index is built around three major policy areas (government spending, taxes and labor market freedom) with a total of 10 subcomponents designed to measure the degree of economic freedom. Consumption spending, transfers and subsidies, insurance and retirement payments, income and payroll tax revenue, property, sales and other tax revenue are all measured as a percentage of income.

In addition, the Fraser Institute factors in the top income tax rate for each state or province, minimum wage income as a percentage of per-capita personal income, government employees as a percentage of total employees in the state, and union density. The scores earned by states and provinces in each subcomponent are averaged out into an overall score for ranking purposes. Michigan received a 6.0 overall out of a possible 10. New Hampshire and New York received scores of 8.2 and 4.25, respectively.

Where we end up in the rankings matters, as a wide gulf rests between the states and provinces with the lowest scores (the bottom quintile) and those in the top two quintiles, as measured by income per capita. In addition, the growth of economic freedom is also positively correlated with the growth of income per capita. In the 18-year history of the index, Michigan has never scored higher than the U.S. average.

A great deal of research has been done on links between economic freedom and measures of well-being. One of those research efforts resulted in a 2019 study titled, “Economic Freedom and Income Levels Across U.S. States: A Spatial Panel Data Analysis.” It was published in the peer-reviewed journal Contemporary Economic Policy, and used EFNA index data.

The authors found that for every 10% increase in economic freedom, there was an associated 5% increase in real gross state product. This comprises the value of all the goods and services produced within the geographical borders of a state and is recognized as a key measure of economic growth.

People are often aspirational, be it here in Michigan; Alberta, Canada; or Zacatecas, Mexico. Striving for a better life for ourselves and our children is just part of the human condition. Even just the pursuit of such related goals can be a deeply fulfilling and inspiring journey. But as the ENFA index shows, here in Michigan, we have a way to go to expand the economic freedom that is part of striving after a better life.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.